Full Year 2022 AerCap Holdings NV Earnings Call

Speaker 1: conference has been recorded and a transcript will be available following the call on the company's website.

Speaker 1: At this time, I would like to turn the conference over to Joseph and Gently, Head of Investurulations. Please go ahead, sir.

Speaker 2: Thank you, operator, and hello everyone. Welcome to our fourth quarter 2022 conference call. With me today is our Chief Executive Officer, Ingas Kelly, and our Chief Financial Officer, Pete Uhas. Before we begin today's call, I would like to remind you that some statements made during this conference call, which are not historical facts, may be forward-looking statements.

Speaker 2: Forward-looking statements involve risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied in such statements.

Speaker 2: AirCap undertakes no obligation other than that imposed by law to publicly update or revise any forward-looking statements to reflect future events, information, or circumstances that arise after this call.

Speaker 2: Further information concerning issues that could materially affect performance can be found in AirCaps earnings release dated March 2nd, 2023. A copy of earnings release and conference call presentation are available on our website at aircap.com. This call is open to the public and is being broadcast simultaneously at aircap.com and will be archived for replay.

Speaker 2: We will shortly run through our earnings presentation and will allow time at the end for Q&A. As a reminder, I would ask the damless limit themselves to one question and one follow-up. I will now turn the call over to English Kelly.

Speaker 3: Thank you for joining us for our full year 2022 earnings call.

Speaker 3: I am pleased to report another quarter of strong earnings for AirCAP. We generated adjusted net income of $645 million and adjusted earnings per share of $2.66 in the fourth quarter.

Speaker 3: On a full year basis, this amounted to adjusted net income of $2.2 billion and adjusted earnings per share of $9.01, surpassing our previous estimate of $8 to $8.50, which we updated in November 2022.

Speaker 3: This strong performance across all our business lines reflects how well our teams are working together to execute an extraordinary number of transactions. This level of transaction activity clearly demonstrates the success of the Cheekass acquisition, the integration of the two companies and the recovery in aviation. Our first statement on the

Speaker 3: Cash generation also remains high, exceeding $5 billion of operating cash flow for the year, despite the impact of Russians, which helped us achieve a debt-to-equity ratio of 2.5 times at December 31, 2022. Given these strong earnings and cash flows,

Speaker 3: I am pleased to announce a new $500 million share repurchase program today. Continuing the theme of prior quarters, the environment for aircraft leasing continues to strengthen and will be further supported by the ongoing reopening of China. AirCops level of activity in 2022 is on paralleled.

Speaker 3: purchases and 97 sales. Without the flawless integration of the two companies, this level of transaction activity simply would not have been possible, nor would it have been possible to take full advantage of the recovery in the aviation market. One area where the power of the platform was particularly pronounced was on the aircraft sale side.

Speaker 3: where we generated 229 million in gains or a 12% margin across aircraft, engines, and helicopters.

Speaker 3: We continue to see further evidence of the travel recovery as Europe , the Americas, and Asia all now exceed 80% of 2019 levels, with China being the latest driver. In particular, the growth in domestic flight activity in China since the zero cold-wood policy was lifted has been significant. It's our passing 12,000 flights per day recently.

Speaker 3: compared to a low of approximately 3,000 flights per day at the end of November . Having spent the last two weeks seeing all our customers in China, it is clear from speaking to the leaders of these airlines that they are also optimistic about the future.

Speaker 3: As we have said time and again, when the consumer is allowed to travel, they do so and in large numbers.

Speaker 3: What we are seeing around the world is that consumers continue to prioritize travel well after restrictions are lifted and this will be no different in China. As a result, the Chinese airlines are all planning to ramp up capacity. We believe this will further exacerbate the supply demand in balance for aircraft and engines.

Speaker 3: pushing lease rates higher. I believe this will be particularly acute on the wide body side as the combination of severely restricted new aircraft production, continued traffic growth, and the retirement and cargo conversion of many wide body aircraft.

Speaker 3: that took place during COVID puts a premium on aircraft that are available today, and AirCAP is well positioned to address this opportunity. We have spoken before about the shortages on the narrow body side, where production cuts due to groundings, COVID, and supply chain issues have had a significant impact. As you will see from the slide,

Speaker 3: This means there are approximately 1,800 fewer narrow body aircraft built today compared to the production run race in 2018. This is equivalent to approximately 11% of the 16,000 or so narrow body aircraft in operation at that time. On the wide body side, these reductions have been even more acute.

Speaker 3: Production rates for new technology aircraft such as the 787, the 330 NEO and the A350 are also well below expectations. Airbus was targeting 5A330 NEOs per month in 2019 and delivered less than 3 per month in 2022.

Speaker 3: They were targeting 10 A350s per month in 2019 and delivered only 5 per month in 2022. Bowling were targeting 14 7 A7s per month in 2019 and delivered less than 3 a month in 2022 with more than 80% of these coming from storage. This has resulted in approximately 740 fewer wide body aircraft built since 2019.

Speaker 3: At 15% reduction relative to the 5,000 or so wide-body aircraft that were in service at the time. That's equivalent to almost two full years of normal production. So how are we capitalizing on this opportunity? The best example I can give you is that since the start of 2022, AirCAP has completed nearly 100 wide-body transactions.

Speaker 3: which I suspect is possibly more than the rest of the aircraft leasing industry combined. We are seeing broad-based demand and we expect this to be sustained by continued traffic growth and low production rates for wide-body air growth. We believe that the issues affecting aircraft production are likely to persist for several years resulting in strong demand and upward pressure on lease rates and values for the foreseeable future. One further topic I'd like to address is the impact of interest rates and inflation on air.

Speaker 3: However, it's important to put these kinds of increases into context. As you can see on this slide, leasing costs make up approximately 5% of an airline's cost-based on average.

Speaker 3: So changes here are much more punishable to pass through than fuel or labor costs may be. Of course, every airline looks to minimize whatever level of cost they can, but they should illustrate that even large percentage increases in interest expenses and leasing costs.

Speaker 3: Our less material to our airline customers than many investors may realize. In summary, this was another great quarter for our aircapaf, with record earnings and cash flow throughout the business. The market environment continues to improve and this is reflected in our financial resultsthe company has successfully navigated an extraordinary period over the last three years.

Speaker 3: And now we are well-positioned and on an upward trajectory for 2023 and beyond. Our confidence in the future is evidenced by today's announcements of our new Share Repurchase program. With us, I will hand the call over to Pete for a detailed review of our financial performance and outlook for 2023.

Speaker 3: Thanks Gus, good morning everyone. We had a very strong performance for the fourth quarter. Our adjusted net income was $645 million or $2.66 per share. The impact of purchase accounting adjustments was $215 million in the quarter.

Speaker 4: This included at least premium amortization of $47 million, which reduced our basic lease rents, $111 million in maintenance rights amortization that reduced our maintenance revenue, and $57 million of amortization that was reflected in higher leasing expenses. In the fourth quarter, we received $47 million of letter of credit proceeds related to our Russian leases, which was reflected in our net claims and recoveries related to the Ukraine conflict line-in them. And we had transaction and integration related expenses of $3 million in the quarter.

Speaker 4: Taking all of those into account, our gap and income for the fourth quarter is $495 million or $2.04 per share. I'll talk briefly about the main drivers that affected our results for the fourth quarter. Basic lease rents for $1,494 million for the quarter and increase of around $20 million from last quarter.

Speaker 4: As I mentioned, our basic lease rents reflected $47 million of lease premium amortization. Lease premium assets are amortized over the remaining term of the lease and reduced basic lease rents. Maintenance revenues for the fourth quarter were $140 million, and that reflects $111 million in maintenance rights assets that were amortized to mean in revenue during the quarter. In other words, maintenance revenue would have been $111 million higher or $251 million.

without this amortization. Net gain on sale of assets was $121 million for the quarter. During the fourth quarter, we completed a record 97 asset sales, including sales of 83 of our owned assets. The total volume of assets sold in the fourth quarter was around $965 million.

So that represents a very strong gain-and-sale margin of 14% for the quarter. Our other income was $74 million for the quarter, which included proceeds from unsecured claims, related to Caruta Airlines, as well as insurance proceeds, related to one of our helicopters. And those two items were told of $36 million of other income in the quarter. As I mentioned earlier, net recoveries related to the Ukraine conflict were $47 million in the fourth quarter, which represents proceeds from letters of credit that were received during the quarter. As we mentioned previously,

We submitted claims for our letters of credit related to Russian lecy's during the first quarter of 2022. We received most of those proceeds shortly thereafter, but there were certain amounts that were disputed by the banks. We've now received virtually all of those amounts. Leasing expenses were 261 million dollars to the quarter, including $57 million of ammarization expenses. Equity and net earnings of investments under the equity method was $38 million to the quarter. That primarily reflects continued strong earnings from Shannon Engine Support, which is our engine leasing joint venture with Safran, and is our largest equity investment. SES has been generating strong performance this year.

driven by the ongoing engine supply and demand factors that Gus mentioned in his remarks. The full year 2022, our adjusted net income was $2 billion and $185 million. Our adjusted EPS was $9.01. That's after purchase of accounting adjustments for the full year of $629 million, transaction and integration related expenses of $33 million, and that charge is related to the Ukraine conflict of approximately $2.7 billion.

Our full year EPS of 901 reflects a strong outperformance relative both to our original guidance of $6.50 to $7, as well as our revised guidance that we provided from the third quarter earnings call of $8 to $8.50. That outperformance has been driven by a number of factors. We've seen a positive impact on revenue from higher cash collections, as well as higher maintenance revenue. We've also seen strong performances from our engine leasing and helicopter leasing businesses. And we've had higher income from our joint venture SES, which has performed well ahead of expectations. We sold just under $2.2 billion worth of assets in 2022.

and had gains on sale of $2,029 million for a 12% gain on sale margin for the full year. We also received significant proceeds from unsecured claims and other items during the year of around $100 million in total. We also had $69 million of market-market gains on our interest rate caps and swaps in 2022. We continue to maintain strong liquidity position.

As of December 31, our total sources of liquidity were approximately $18 billion, which resulted in an next 12-month source's use coverage ratio of 1.4 times, which is above our target of 1.2 times coverage and represents the excess cash coverage of around $5 billion. Our total operating cash flow was approximately $1.6 billion for the quarter. That's a very strong number, which was driven by continued strong cash collections and operating performance, as well as sales proceeds from some aircraft that were on finance leases that were sold in the quarter, along with the letter of credit proceeds related to our Russian lassies. As a result of the strong earnings and cash flow generation, we saw a significant decrease in our leverage ratio.

and we ended the year with net debt to equity of two and a half times, which is well below our target ratio of 2.7 times. Our secured debt to allow for ratio is approximately 14% at the end of the year, which is in line with the third quarter, and our average cost of debt for the fourth quarter was 3.3%. Earlier this week, Moody's upgraded our senior unscured ratings to BWA2, and we remain on positive outlook with Fitch. So that continues our positive ratings trajectory. Now I'll spend a few minutes talking about our financial outlook for 2023. As Gus mentioned, we're seeing a strong recovery in aircraft demand and significant supply constraints, both of which we expect to persist.

So the environment for leasing continues to be positive, and we expect to see leased rates continue to climb higher during the course of 2023. Our EPS guidance for full year 2023 is $7 to $7.50 of adjusted EPS, excluding any gains on sale, as well as other items like recoveries of unsecured claims. If we look at our 2022 EPS of 901, you can see that was comprised of a number of items that we haven't included in the 2023 forecast. For example, we haven't assumed any gains on sale, which were 83 cents after taxes in 2022. In 2022, we also had marked market gains and interest rate caps and swaths.

as interest rates rose and the value of those derivatives increased. So that's a 41 cent impact. Up until the invasion of Ukraine at the end of February last year, we were still receiving rent from our Russian airline customers. Obviously, that's no longer the case. So the 14 cents reflects the removal of this rent, as well as the depreciation related to those assets, which we wrote off and full in the first quarter of last year. We also had 39 cents, once you're claims, and other items of 2022, and we haven't forecasted anything for those items in 2023. We'll also have some higher costs associated with our cargo conversion program in 2023, as that ramps up this year, as well as higher insurance costs.

So those are both reflected in the 41 cent impact shown here. And finally, please find higher lease revenue and other items in 2023, which we project will increase our EPS in 2023 to $7.50 excluding any gain on sale or other income items. If we take a look at our projected income statement for 2023, you can see that we expect to have total revenue of approximately $6.8 billion, interest expense around $1.8 billion, depreciation of approximately $2.5 billion, and leasing expenses, SGNA, and other expenses.

over on $1.2 billion. That gives us total pre-tax income of $1.3 billion. The next line, tax expense and income from equity method investments includes our income from SES. We expect that our effective tax rate will be around 14% for 2023 and we expect to have around $100 million of income from our equity investments. So that gives us gap in income of approximately $1.2 billion. We expect to have purchase-scouting impacts that is from lease premium and maintenance rights amortization of around $500 to $600 million for the year. So that results in an adjusted income of around $1.7 billion and adjusted EPS.

of $7 to $7.50, which as I've said, doesn't include any gains on sale. We expect to have asset sales at $2.5 billion for the year, which is an increase over the $2.2 billion of sales that we had in 2022. We expect to have cash cap-ex of $6.8 billion for the year. Of course, the volume of sales will depend on the market for aircraft during the year, and the amount of cap-ex will depend on the ability of the OEMs to deliver aircraft. But for now, those are our best estimates. To overall, this was another strong quarter for aircraft. After the invasion of Ukraine last February and the right-off of our Russian assets,

We've rebounded strongly, which you can see in the level of our transactions activity, our financial performance well above guidance, and the fact that we've delivered to a level that's well below our target. We also see this confirmed by the ratings upgrade to BWA2 from Moody's that we received earlier this week. And we expect the trends that are driving these results to continue, which should be positive for our business in 2023 and beyond.

That gives us confidence to announce a new show, a purchase program, and confidence about our outlook for 2023. With that operator, we can open up the call for Q&A. The question and out-of-the-session will be conducted electronically. If you would like to ask a question, please sign up by pressing star 1 on your telephone. If you're using a speaker phone, please make sure your mute function is turned off.

to allow your signals to reach our equipment. Again, press star one to ask a question. Just a moment to allow everyone an opportunity to signal for questions. We will take our first question from Jamie Barker from JP Morgan. Please go ahead. Hello, this is James on for Jamie, thanks operator. First question.

There was a recent article speculating that you guys were in discussion with a Russian airline to purchase a plane that discounted price to the extent that you can comment on that. Any clerk could provide there, but also is that even possible just given the sanctions in place? Yes.

Thanks James. As you know, we are pursuing insurance claims against our own insurers and against the Russian airlines insurers and reinsurers.

We have been approached by some Russian airlines and they're insurers about potentially insuring settlements involving some of our aircraft lost in Russia. However, it is too early to know whether anything will come out of it and we have no thing further to say on of this stage.

Got it. Understand. Just thought I would try to try the question there. Just on the cadence of the cargo business revenues to the year, it seems like the 41 cent impact for 2023. Just how should we think about that as the year goes on? Sure. Well, that's James. That's really an impact of a couple of things. You've got cargo expenses as those conversions happen throughout the year. I'd say they're going to be pretty balanced throughout the year. And then we do have higher insurance expenses in there as well.

and then take them as they come? How should we think about the forecast for zero sales in 23? Well, Haleen, so we're projecting $2.5 billion of sales for the year. So that is in our forecast. Well, we haven't done, which is consistent with how we've done it previously. We haven't made any forecast for what gains on sale will be.

Because that's really going to depend on what assets we sell and what the market is like during the course of the year. But we are expecting to sell to 1.5 billion last year in 2022. We sold 2.2 billion dollars worth and we would expect to do a little more than that during the course of the year. That's helpful. I meant gains not sale. Sorry about that. And then my other follow-up question is on cat-backs, the 6.8 billion. So how are you thinking about two things? One, financing it. And two, flipping it to the right. Given what you said about delivery delays and what we're seeing about delivery delays and the slide that Angus referred to earlier in his remarks, it looks like you may not get all the aircraft that you're contracted to get. So how should we actually think about what cat-backs will look like and how beefenanced? Thanks.

Well, CapEx has been a moving feast to lay in your right over the course of the last few years, and I expect that to continue. These are our best estimates at the moment, but even yesterday, as you have seen, Airbus made some announcements about the XL or delays again. So this is a dynamic situation, but it's our best estimate as of now.

Okay, thanks. And financing them. So this up with generate operating cashflow of five billion as we said, we expect in the coming year. And then in addition, there would be two and a half billion of sales. So relative to the size of balance sheet and the cashflow generating power of the business.

These are very manageable cat-backed numbers, even if they were to all deliver, which I doubt. Okay, thanks very much. Have a great day. Thank you. We will take our next question from Moshe Orenbo, from Credit Feast. Please go ahead. Great. I'd like to speak, Pete or Gus actually. I'm hoping you could kind of talk a little bit about how obviously we'll see the benefit of the strong value market and aircraft in the sales numbers in Southern and the fourth quarter and likely see them in 2023. Can you talk about how that's going to be manifested in lease rates and whether you've assumed any of that in your 2023 guide? Sure, Moshe.

You know, I think we've had this discussion about your guidance in the past as being conservative as excluding some of the items that are in there and I, you know, in talking with investors this morning already I think there's been, you know, some some confusion, I guess.

The fact that you kind of on the slide on page 13 kind of exclude the market of interest grade caps and swaps, that doesn't mean that you expect that to be necessarily zero in 2023 is that, and some of those other items that are on there, they won't necessarily be zero in 2023 correct. Correct. And maybe I'll take a moment, Mosha, just to talk about those. So the market of interest rate caps and swaps.

During 2022, we had a benefit from that because interest rates rose and the value of those derivatives of those caps and swaps rose. So we had to mark that to market. So we're not projecting, we're not making assumption about that in 2023 that that's going to happen again. So that's that item. You know, some of the other ones like the lower incomes resulted in the Ukraine conflict. So that reflects the rent that we got on our Russian aircraft during the first quarter, less the depreciation on that. That's obviously gone. Right. So I would not include anything for that. And then we've reflected the cargo conversion program.

In terms of the other items though, the gains on sales, so I think you could take a look at the or projection of two and a half million of sales and make a evaluation of whether you think that's higher or lower or accurate. And then historically, we've had gain on sale margins of 8 to 10 percent. Last year was 12 percent. I mean obviously that's market dependent, but that's what we've had. And then in terms of other items, you know, in 2022, we had about 100 million of unsecured claims that came through. And those are not something that we project. So that's not in these numbers of the 7 to 750, but, you know, I'd say in a in a balance sheet of this size and a business of this size, it's not unusual for us to have things come in in that other income line item. So that's how I would think about it is. You know, you've got about 7 to 750 is what's really for-castable, but then there are other things that could come on top of that.

Thanks so much. We will take our next question from Hillary Kekanando from Deutsche Bank. Please go ahead. Thank you. Thank you for the time. I was wondering, did you buy back any stag here to date? And I know you just announced it. But I'm wondering if you bought any. And do you have a full year repurchased target? We have not bought any back. We just announced it today. So we haven't bought any shares yet. In terms of full year, look, we're going to generate excess capital during the course of the year. And what we've always done historically is look as we generate excess capital. We look at how to deploy that. And obviously we've done a lot of sherry purchases in the past. I don't want to speculate about how many we will do this year. But obviously, as we

We will take our next question from Vincent Cantex from Stevens. Please go ahead.

Thank you for taking my questions. First question going back to Net Spread. So appreciate the comments about Leesorade expansion and kind of building off of the fourth quarter result. Maybe you could talk about the funding side, you know, how we should think about funding costs. So.

and how much of an offset that would be particular with the purchases of the 6.8 billion this year. Sure, Vincent. So in terms of net spread for the year, I think it's going to be pretty flat from where it was for the fourth quarter, 7.6 percent or so. So I think that's a reasonable estimate.

In terms of funding, so we have about $67 billion worth of funding that we would expect to do. That obviously depends on the getting all these deliveries, 79 aircraft during the course of the year, as well as the level of sales that we ultimately end up doing. But based on the two and a half billion of sales and based on that, just under 7 billion of CAPEX, we would expect to do about $67 billion, which is that would be in unsecured bonds. It would be in some secure deals, unsecured bank deals as well, so it would be a combination. But that probably means two to three trips to the market during the course of the year. Okay, great. That's very helpful.

And second question, so we'd like to hear the strength in the valuations of aircraft as well as lease rates expanding. How do you balance between selling aircraft and realizing to gain some valuations moving higher on aircraft versus keeping the aircraft and taking advantage of the lease rates expanding sensors such high demand there. Thank you. Right, visit when we think about selling us.

the average aircraft in the portfolio post the sale.

average aircraft in the portfolio post the sale would be a slightly better also better.

than it was before the sale of this portfolio of assets. That's the key driver that you're always trying to make sure that the portfolio is built for the long term. And that's the primary driver of all our decision making and that's underpinned the success of the company for many, many years. Holding on to assets and clipping near-term coupons when you know there's an issue with the, say in the bond world, if you're clipping a coupon of 12, 13% a year in a very low-range environment and the bond is trading at 80 cents on the dollar, you know there's an issue somewhere there.

issues with the introduction of new technology we could see before others that the trend for airlines was to move faster than many realized into the newer technology when they could. That's one example of many events.

Okay, that's very helpful. Thanks very much. We will take our next question from Chris Stata-Lapoulos from Suskana. Please go ahead.

Thank you for taking my question. So Angus in your prepared remarks, you spent a good deal of time talking about China, the reopening there. I think you spent time on the last call, but could you speak to what you're seeing in the Americans and other regions and how you would describe, I guess, the pace of...

recovery there. And then also curious within that, if you're, you mentioned that you have a lot of data that you're privy to within those markets, if you're looking at the segments of travel and how leisure and business might be shaping up as well. Thanks. Well, if I, if you start to say with the Americans, the market has been very strong there. The domestic market is extremely strong. We expect a very strong summer there with good yields.

You can see that there was a tightness of supply of narrow body aircraft in the U.S. markers. And the North Atlantic market is booming. The North Atlantic is by far the biggest long hole market in the world. So that affects both the American and the European sides there. So I would show the American domestic market has been extremely strong. I would show the Western European market also has been extremely strong. I think Ryanair had their biggest week of sales ever. Ryanair being the biggest airline in Europe . And what you'll see around the world is a similar trend where...

give or take with 80% of 2019 capacity. They're generating after above 2019 revenue. And we see that type of trend being repeated. Now, of course, the input costs for the airlines through higher fuel and some extent higher labor costs, they need that rise, but the good news is that it's there. With regard to China, I spent two weeks myself in China. I'm just back, I got back on that the weekend from spending two weeks there. I met all of the major airlines, be it the flag carriers, the three majors, low cost carriers, throughout China. And again, we're seeing the same pattern of recovery there.

or the domestic market was extremely strong for the spring festival or as we call it the Chinese New Year that occurred in January the airlines were in profitability pretty much across the board for the first time heavily focused on the domestic market and into Southeast Asia. So we'd expect that that that is the same that we saw in the Americas and in Europe .

And then that expanded over time into the international markers. And I think we'll see the same over the next 12 to 18 months in China. Okay, nice second question. So there's clearly you speak to it and what we're seeing here in the data. A lot of upper pressure on these rates as a whole, but could you speak to the cargo side? Where perhaps we're not seeing as a construct of a supply demand backdrop? If you will, volumes consistently moving lower here in the return of belly capacity to the market is these long-haul international flights.

come back online. So, curious what you're seeing on the cargo side. And if within that, if there are any sort of aircraft types that are performing better or worse, thank you.

It should be no surprise that targer yields are down. They were stratospheric high during COVID. And it got to the situation where for some low-value products like a pair of sneakers, the cost of transporting them from Vietnam to the states or Europe was getting close to the cost of the sneakers.

So that was an unsustainable situation. So there's no surprise there that has come down. A lot of demand was pulled forward, of course, in code, when people were at home buying stuff online. That being said, however, what we do believe that the cargo market is a lot more stable now than it has been in the past. If you wind back 10, 12 years, the cargo business was dominated by the major carriers, like the FedEx, the UPS, the DHL, and a few large Asian airlines that had big freight or fleet. They are fleet.

and it was focused on moving food, flowers, fish, drill bits around the world. Now of course the e-commerce has supplanted us and we have a much more stable demand and wider and broader demand for cargo. So I would say that demand is still pretty good. Relatives to wear laws before COVID, it's very good. Relatives to wear laws in COVID of course is down and that should be no surprise. As it's to specific aircraft types, the 737-800-FRAJER is the workhorse of the narrow body side.

The 767, there's just running out of feedstock, that is just an aging platform. So we're going to see that being retired. And that will be replaced over time by a combination of the A330 converted freezer. But importantly, I would say the triple 7300DRF, we've seen very strong demands for that product. We had 20 slots, we've already leased 18 of them, which is a very, very strong uptake, because that aircraft has got so much volume, which is what you need for e-commerce, where the weight is not as important to the volume at the space on the aircraft, the volume others.

So, you know, look, I don't think anyone should be in any surprise that freight rates came down and the amount of tonnage being moved came down. That doesn't surprise us at all and something we fully expected. Thank you. We will take our next question from Ron Epstein from Bank of America. Please go ahead.

Good morning, guys. Just a quick one, guys. When you look at other leasing businesses, cars, other equipment, as assets become more scarce, it's causing them to retain more value. They're given the tightness of the aircraft market. You guys contemplating at all.

changing your depreciation rates on aircraft or are they just too long live that to consider doing that? Yeah, that's just an accounting policy, Ron, that you know we sat in it's over a 25 year period and it served as well to be honest and yeah, I don't see us changing it. There's never been a concept of market to market the depreciation or the values.

But, but, but, Rhonda, I would say, you know, it's, it's a speed here. Certainly, we should see with higher inflation, that should have a positive impact on the residual values of our fleet, because they are hard assets as you say. So I think longer term, you know, obviously, we love to see how persistent that is, but, you know, we're strong believers, obviously in our book values today, but I think this even gives.

should give people more confidence as time progresses. Yeah, for sure. Got it. Got it. Maybe a follow on. Are you guys getting any kind of inflationary adjustments in the maintenance reserves that you get from your customers? Well, to the extent that you have maintenance reserve paying leases, what happens is they get adjusted each year in the contract with whatever the OEM increases the reserve rates by for parts, et cetera, LLPs. And then if you have an end of lease deal.

If the engine has to come back overhaul, then the risk is with the customer. But for the most part, Ron, that's passed on. There will be instances, of course, where you have to take an airplane back prematurely. And if there's some inflation there that was uncovered, you'll have to deal with it. But that's nothing unusual. I wouldn't see it as having any material impact when we're the other. Okay, great. Thank you very much.

Thank you. We will take our next question from Locked of Yours from Barkey. Please go ahead. Yeah. Thank you. The new $500 million repurchase authorization looks...

They'll be conservative to us. Even if you bought back all of that tomorrow, I think it'd still be at 2.6 times levered below your target. As you mentioned, it's going to be very strong cash flows. Where you'll generate additional excess capital, even if you realize the full 6.8 billion of CAPX for the year. How are you guys thinking about alternative uses of excess capital generation outside of the repurchase authorization? issues?

Well, Mark, I mean, we always like to add all different alternatives out there with the that's buying aircraft, whether that's M&A, although I think that's unlikely at the moment, but M&A or returning capital to shareholders. And, you know, as we think about, as we thought about sizing this now, we thought, well, we do have excess capital available. It makes sense to deploy it, and this is a good way of doing it. We'll continue to look at that over time as we say. I expect we will generate a lot of excess capital. We'll generate north of the billion during the course of this year.

Okay, fair enough. Thank you.

Sure. It appears we have no further questions at this time.

I would now like to hand the claw back over to today's bigger for any additional or clothing remarks.

Thank you very much operator and thank you all for joining us for the call and we look forward to talking to you in a few months time.

This concludes today's call. Thank you for your participation. You may now disconnect.